If you are planning on filing for Chapter 7 bankruptcy in the near future, it's important for you to first learn how cash windfalls may affect your situation. Cash windfalls can include a lot of different things and can negatively affect your financial situation when filing for Chapter 7. Here are two important things to know about this.
Cash Windfalls Within Six Months Count
When you file for Chapter 7, you will qualify as long as your income is less than the median income in your state. This is determined by completing a means test, which is based on the last six months of income you have. The income included in this figure is not only your normal earnings, but it can also include:
- Child support or spousal support you collected
- Lottery winnings
- Lawsuit settlements
- Bonuses or irregular types of income
When a bankruptcy attorney completes your means test, he or she will ask you about all these types of incomes. If you have had any of these, you must legally report them. The problem with this is that it can cause your income to reach above the median income in your state. If this happens, you probably will not qualify for Chapter 7.
If you do not qualify for Chapter 7, you may be able to file Chapter 13; however, this branch of bankruptcy has several disadvantages. First of all, it takes three to five years to complete a Chapter 13 bankruptcy. Chapter 13 bankruptcy also requires repayment of many debts, whereas Chapter 7 is used to discharge debts.
If you received any cash windfalls within the last six months, it might be beneficial for you to wait before you file. Make sure that when you do file, at least six months have passed since you received the money.
Cash Windfalls Can Be Intercepted
When you file for Chapter 7, you will have to appear before a bankruptcy trustee. You will be sworn in, which means you must tell the truth. The trustee will review all the paperwork your bankruptcy attorney filed and will ask you questions. Some of the questions will involve cash windfalls that you expect to receive.
When you are asked if you are expecting any cash windfalls, you must state the truth. For example, if you are currently involved in a personal injury lawsuit and are expecting a settlement, you must reveal this during the meeting. If you are not yet involved in a lawsuit, but are planning on filing one, you do not need to reveal this typically.
Any cash windfalls you suddenly or unexpectedly receive after the time you file for bankruptcy are not typically intercepted. It is primarily the cash windfalls that you already know about when you file that can be intercepted.
One of the main sources of money intercepted during a Chapter 7 case is a tax return. Because Chapter 7 allows you to have your debts forgiven, the trustee has the right to seize your next tax return. This typically only involves the tax return for the current year, but you can find out more by talking to your attorney about this.
This money, and any other money that is intercepted, will be used to repay your debts. It will be up to the trustee to determine which debts will get repaid, and it is likely that each creditor may get a percentage of the money collected.
Filing for Chapter 7 can be a smart decision to make; however, it's also important to fully understand how cash windfalls can affect your finances. If you would like to learn more about Chapter 7 bankruptcies, contact a bankruptcy lawyer in your area today.Share